Political tensions, just transition and human rights took centre stage as investors around the world gathered in Toronto to discuss the future of responsible investing.
PRI in Person, the world’s leading conference on responsible investing, brought together close to 2,000 professionals in Toronto in October to learn about the latest developments in ESG.
The theme of the 16th annual event was “Progressing global action on responsible investment.” While economic and financial actions are key to achieving climate and nature goals, during the conference it became clear that responsible investors cannot overlook the impact of political will and geopolitical turbulence.
Here are some of the key topics discussed in the event.
Should we add another G to ESG?
Many conversations at the conference, both on and off stage, revolved around geopolitics, as political tensions pose a significant risk to achieving global sustainability goals and advancing responsible business practices. During a keynote the suggestion of adding an extra G, geopolitics, to the familiar ESG acronym arose.
Responsible investors now have their eyes on the upcoming presidential election in the United States. While the tension between the US and China will likely continue under either administration, the election’s outcome will impact responsible businesses and investors worldwide. Should Donald Trump win, his administration is feared to repeal the Inflation Reduction Act, which promotes clean energy. On the other hand, Kamala Harris’s presidency could lead the US government working more closely with allies like the EU on renewable energy infrastructure. Meanwhile in Europe, right-wing parties are leveraging people’s discomfort with the speed of change to curb green policies. Geopolitical tension can also spur the anti-ESG sentiment further. These examples bring to centre stage the significance of geopolitics in ESG.
Climate change and biodiversity loss are human rights issues
One of the conference’s recurring themes was the link between nature and people’s well-being. Climate change, pollution and biodiversity loss are not only environmental concerns but also human rights issues. Many negative environmental developments affect areas disproportionately, often hitting disadvantaged communities the hardest.
A clean environment is increasingly recognised as a human right. However, the disparity in access to natural resources remains strong. For example, in Canada, 76% of Canadians who earn less than USD 20,000 annually have very limited access to natural areas and thus do not equitably benefit from nature. Investors must assess how factors like race, gender and income affect people’s ability to enjoy a healthy environment.
Luckily, there are already tools available for investors. To make human rights-related assessment easier, the OECD has created guidelines for conducting human rights due diligence for institutional investors. The link between nature and people is also highlighted in the new Taskforce on Inequality and Social-related Financial Disclosures (TISFD), launched just before the conference. TISFD develops a framework that helps investors and businesses understand and report people-related impacts, dependencies, risks and opportunities.
Both workers in fossil and renewable energy deserve a just transition
Just transition was a central theme in many keynotes and discussions throughout the conference. As the world moves from fossil fuels to renewable energy, policymakers, businesses and investors must ensure that the transition is fair to the people and communities affected by the shift. PRI has recently published a paper calling for socially conscious transition policies.
Just transition often focuses on stranded assets and the communities that have relied heavily on fossil-fuel jobs. However, workers in the rapidly growing renewable energy sector should not be forgotten, as green energy jobs are often underpaid compared to those in the fossil fuel industries. Communities in fossil fuel-dependent regions must be prepared for the transition to avoid deepening inequality and social dislocation while ensuring liveable wages in the expanding renewable sector.
Another issue raised at the conference was mining minerals for electric vehicles, which often exploits local communities and violates indigenous rights. According to the IEA, the demand for critical minerals is set to quadruple by 2040. Investors were encouraged to ensure ethical practices across supply chains, especially when mineral extraction happens on or near indigenous lands.
Who’s driving the change?
Everyone in Toronto agreed that change is necessary. However, the question of who’s driving the change – policymakers or businesses and other stakeholders – remains unsolved.
On one hand, policymakers set the rules and can move the entire playing field to get things rolling. Without a global price for carbon, for example, companies won’t feel the pressure to reduce their emissions.
On the other hand, legislative progress is sometimes painfully slow. It has been almost 20 years since economist Nicholas Stern concluded that climate change is the biggest market failure, but legislation is still lagging – and thanks to geopolitical turbulence, it is even moving backwards in some parts of the world.
Businesses and investors are often acting faster than policymakers. In Toronto, the sentiment was that a bottom-up approach could be more efficient than waiting for legislation to catch up. Approximately USD 7 trillion is invested annually in sectors that hurt nature, contributing to a whopping 7% of the global GDP. To reverse this trend, the focus needs to be on pricing and incentives for green transition and nature-positive actions.
While the overall outlook on climate change and biodiversity loss may be bleak, positive examples were highlighted throughout the seminar. For example, Canada, this year’s host, has made impressive progress on sustainability. The government has launched a growth fund investing USD 15 billion in green transition and has crafted its own climate taxonomy. Canada has also taken up national engagement initiatives, like aiming to engage with and decrease emissions of the country’s 40 highest emitting companies.
PRI in Person 2024 demonstrated that the scope of responsible investing is expanding, with new themes and frameworks constantly emerging. Curbing climate change, fighting biodiversity loss and advancing social justice requires concrete action and close collaboration between policymakers, businesses and responsible investors.
Petra Hakamo
